There is no doubt that the world has prospered through consumerism, as the economic benefits of consumption touched everyone in a manner that made it a desirable state of things.
Even in olden times there were all the elements evident but consumerism got limited by proximity to markets and commerce got stunted by transportation costs.
If we were all engaged in saving and living in a world of economy, most of the products and services would not have even been innovated for acute want of demand. The world would have prospered less not more.
Necessity is no more the mother of invention, but the propensity to consume is. The Fable of the bees, no matter how supremely relevant it may have been in 1732, we have moved on to believe that there is virtue in consumption, not just vices. What Mandeville cautioned us is however even relevant today.
But consumerism has changed with the internet. Promotion and advertising, the two great pillars of the selling function that did marvels is now slowly and steadily changing in a different trajectory.
I remember those days when a large number of coupons got delivered along with the newspaper that gave discounts on products, alluring people to buy them. The clear direction was production and “push” sales through promotion and advertising; as many products on display, the more the chances of getting sold. Capturing retail space and shelves got the better of understanding buying behavior around a need, stated or latent. The Mom and Pop shops got fast replaced by the stores format and the larger the store, the better were its chances of success.
Walmart did even better as they made their presence in locales where just one store could cater to almost everything that the community wanted, mostly any merchandise you could possibly name. In the back end this needed a voracious appetite to cut costs, which meant building of a supply chain that was as efficient as responsive. Combining both these seemingly opposite objective functions, one that would limit the improvement on the other was achieved by Walmart.
The invention of the bar code revolutionized retailing and the ensuing productivity allowed reduction in cost in a big way. But this model was getting some slow and steady competition from other stores where brands were ruling the roost and not just costs, there were other areas of value where consumerism could derive immense benefit. The emphasis moved to lifestyles instead of mere need-fulfillment, a journey that took some brands to the stratosphere. The Walmart model got some stiff competition from the branded retail format.
This segment of sales, that of branded products, were not predicated on the famous Say’s principle of ‘supply finds its own demand’, but to the ordinary habits of people that attributed value to things that were precious not by the make of it but through ‘associations’ of all kind; no wonder a Patek Philippe cannot be sold along with other watches or a Louis Vuitton with other accessories.
The next revolution came from the internet when direct buying without going through the branded retail format made allowance for the consumer to select the product instead of the product making its presence felt through physical attributes on a shelf. This created a major shift that the platforms, that allowed such buying and selling between a consumer and a brand owner, slowly and steadily accrued more market power than either the consumer or the brand owner.
The platform, whether be it Alibaba, Tmall or JD.com or even Amazon and eBay, became the controller of the traffic between products and consumers and gave little opportunity to the brand owner to get data on the consumer searches or the consumer buying experience around the products.
The rise of intermediaries threatens to come between the producer and the consumer in such a way that the producer loses its touch with the consumer. The traffic controller, the platform, now knows every tiny bit of information that would make the likelihood of the next sales turn into a reality.
This is a very significant shift as consumer searches on-line is the most potent tool to understand buying behavior and if such data could be aggregated it would give insights into the possible future purchases as well. Consumer data and search data fall under the category of Big Data and data analytics; this segment fructified into an entire business entity with enormous prospects given the stratospheric rise in growth rates in on-line buying.
The brand owners were left with no other choice but to start their own platforms but this had potential pitfalls as economies of scale would come in the way of costs and efficiencies. Secondly such an action would mean direct competition with the big platforms, something that would not bode well for the future.
The better strategy is to actually work collaboratively to get a peek of the data around consumer buying experience and the searches around products so that the brands are able to better formulate their action plans for the future. This collaborative approach is a win-win for the brands as well as the platforms, but power could be shifting both ways as a result.
In the meantime the platforms are neither the producer of the product nor do they have any responsibility towards the quality of the product or service they are promising. But if one sees their typical campaign they are posing as proxy-guarantors of the generic product, which in some ways is a skillful way of saying that, “if you have chosen the right product, we ensure you get ‘it’ what you chose”.
The platforms have the problems they have created for themselves, that of deep-discounting as the way to access market power, which has immense ramifications. The pace at which some are running out of funds and losing on their valuation metrics is for everyone to see. But the game is always one of speed at which customer acquisition is being done and the winners are always very few in this.
But what happens to the power of the brands in on-line retail is something where the jury is still out. If Louis Vuitton is such a powerful brand, it will get sold on-line, but how would Louis Vuitton ensure that it is able to preserve its brand power when very few actually travel to its physical stores or if Louis Vuitton has little idea who are its buyers and what they were searching when they bought Louis Vuitton? Possibly rise of promotional events is on the cards, or could it be that on line customer interfaces are developed that could actually target potential customers by the same process of ‘Pull’, instead of ‘Push’.
Times will tell how this match progresses, but surely consumerism has changed from being ‘pushed’ around with products and services to being ‘pulled’ through on-line conversations of all kind. The producer of the product or the service is drawn further away from the real consumer by the intermediaries.